Home Buying in Torrance>Question Details

jon_c, Home Buyer in Torrance, CA

FHA loan for a multiplex

Asked by jon_c, Torrance, CA Wed Jan 30, 2013

I am getting conflicting information. Somebody told me that you can use 85% of the rent from occupied units as part of your qualifying income. This would obviously increase your qualifying income.

But somebody else said that the rent must cover the full PITI in order to qualify. I don't see how that is possible if it is owner-occupied. That means half of the property must cover the whole mortgage. (That would be for a duplex. Or it would be two-thirds for a triplex or three-quarters for a four-unit building.)

Can somebody explain the rules? Thanks.

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2
Shane Milne’s answer
With 3 & 4 unit properties, FHA requires them to be self-sufficient. This means that the maximum mortgage dollar amount is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent.

So you take the net rental income from the appraiser’s estimate of fair market rent from all units, including the unit you will be occupying, less the appraiser’s estimate for vacancies or 15% (whichever is greater). That amount can't be less than the monthly housing payment (principal, interest, taxes, insurance, mortgage insurance, and HOA fees, if any). If that amount is less than the monthly housing payment, then a down payment greater than 3.5% would be needed (to get that amount to no less than the housing payment).

FHA also requires 3 months PITI in reserves (cannot be gifted).

For 2-units, the "self-sufficiency" requirement & 3 months PITI in reserves are not applicable.

Qualifying income is different though, qualifying income from the rents can only be used if they are actually rented out, and of course the unit you will be occupying cannot have it's rental income help qualify either.

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes Thank Flag Link Wed Jan 30, 2013
Hi Jon,

The information I have been able to find supports the 85% rule of thumb you mentioned with 15% to cover for vacancies.

Let me know if I can be of further assistance in helping you in your buying search.

Regards,
Bruce
DRE:01004069
0 votes Thank Flag Link Wed Jan 30, 2013
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